Dr. Donald Ranta reports
RARE ELEMENT ANNOUNCES POSITIVE RESULTS OF SCOPING STUDY ON BEAR LODGE RARE-EARTHS PROJECT
Rare Element Resources Ltd. has released the results of a scoping study of an NI 43-101-compliant preliminary economic assessment on the rare earth resources delineated on its 100-per-cent-owned Bear Lodge project, located in northeastern Wyoming, United States. Highlights of the study are summarized in the table, "Preliminary economic assessment -- Bear Lodge rare earths project," with additional commentary.
PRELIMINARY ECONOMIC ASSESSMENT -- BEAR LODGE RARE EARTHS PROJECT
Case 1
(base case)
3-year Case 2
trailing estimated
average long-term
prices(1) prices(2)
Production rate (tpd) 1,000 1,000
Mine life (years) 15 15
Initial capital (US$) $87-million $87-million
Operating cost (US$/ton) $245 $245
Life-of-mine sustaining capital (US$) $88-million $88-million
REO recoveries to concentrates 80% 80%
Annual REO contained in concentrates (tons) 11,400 11,400
Payable value of REO (US$) $143-million $178-million
Annual operating cash flow (US$) $50-million $80-million
Internal rate of return (IRR) 40% 60%
After-tax life-of-mine cash flow (US$)
(undiscounted) $598-million $978-million
After-tax net present value (US$)
(at 10% discount rate) $213-million $380-million
After-tax net present value (US$)
(at 15% discount rate) $131-million $251-million
Payback (years) 3.1 2.4
(1) Rare earth bulk concentrate prices are used in the study and are
based on historic three-year average concentrate prices from
Metal Pages and assembled by the Industrial Minerals Company
of Australia.
(2) Estimated long-term prices of bulk concentrates represent a price
increase of 25 per cent over the historic three-year-average
concentrate price.
"The preliminary economic assessment completed on Rare Element's Bear Lodge rare earths deposit demonstrates a potentially robust case, without any government support or incentives," stated Dr. Don Ranta, Rare Element's president and chief executive officer. "The Bear Lodge project is expected to significantly contribute to employment, revenues and the economy of the state of Wyoming. Work is continuing to advance the project towards a production decision and a number of opportunities to further enhance the already-robust project economics are being evaluated."
Scoping study (PEA)
The study was prepared by independent consultant, John T. Boyd Company, with the assistance of consultants Mountain States R&D International and Ore Reserves Engineering. New NI 43-101-compliant inferred mineral resource estimates for two of the four known mineralized zones at Bear Lodge (Bull Hill Southwest and Bull Hill Northwest deposits) were prepared by ORE and were announced in Stockwatch May 26, 2010. The study provides an initial development model and a preliminary economic analysis of the project based on the resources estimated for the two deposits. The final NI 43-101-compliant technical report is nearly completed and will be filed on SEDAR within 45 days.
The study was commissioned by the company in 2009 to evaluate the potential economic viability of recovering rare earth elements (REE) in concentrate, with a future goal to recover individual rare earth oxides (REO), from the resources in the Bull Hill area of the Bear Lodge project. This was in response to growing demand for these elements in environmental and other applications where the REE is vital to the new technologies developed for fuel-efficient (hybrid) automobiles and plug-in electric vehicles. Many hybrid cars use rechargeable nickel-metal-hydride (Ni-M-H) batteries that contain lanthanum along with electric motors and generators that require high-strength permanent magnets containing neodymium, praseodymium, dysprosium and terbium. Substantial quantities of all five of these rare earth elements would be produced by a mine at Bear Lodge, and the five would represent nearly 65 per cent of potential saleable products' value.
Rare earths -- markets and pricing
For an independent analysis of REE markets, including supply and demand forecasts, Boyd relied on a recent confidential report and supporting data produced by IMCOA, an independent industrial minerals research firm based in Perth, Australia, and led by Dudley J. Kingsnorth. This report was requested by the company and provided to Boyd as a basic reference. The IMCOA report forecasts growth in global demand for REE at a rate of nearly 10 per cent per year until 2020, from approximately 125,000 tonnes in 2010 to 200,000 tonnes by 2015 to 280,000 tonnes by 2020, expressed as TREO (total rare earth oxides or the sum of all 14 REE plus yttrium). During this period, primary supply sources located mainly in China are not expected to increase production significantly, creating a growing supply/demand gap. China has been reducing its exports of rare earths for several years and announced a major reduction in exports in early July, 2010. These policies have already caused significant price increases for most REE and created opportunities for new primary suppliers to enter the market. Boyd concludes that the Bear Lodge REE resources, which require significant further work to bring them to the feasibility level of analysis, represent an attractive potential mine development opportunity for the company.
Bear Lodge -- low-cost open pit mining
The development model used by Boyd and its associates for the study contemplates conventional truck and shovel open-pit mine production from the near-surface oxide inferred resources in the Bull Hill SW and NW deposits, which would provide an initial mine life of 15 years. Recent drilling has successfully intersected REE outside the known resources and may support an eventual increase of mine life beyond that contemplated in the study. All of the mineral resources at Bear Lodge are currently categorized as inferred mineral resources. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Mineral resource estimates do not account for minability, selectivity, mining loss and dilution. These mineral resource estimates include inferred mineral resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is also no certainty that these inferred mineral resources will be converted to measured and indicated categories through further drilling, or into mineral reserves, once economic considerations are applied. Also there is no certainty that this preliminary economic assessment will be realized. An economic assessment will almost certainly change as new information is generated on the mineral resources, mine plan and processing methodology.
Bear Lodge -- REE production
In the base case scenario, a conservative production rate beginning at 500 tons per day of mineralized material will progressively increase to 1,000 tons per day by year three. Once full production is achieved, the TREO produced each year would be approximately 11,400 tons (10,400 metric tonnes) in bulk rare earth concentrates. Discounted cash flow analysis of this scenario, using 2008 through 2010 REE bulk mixed concentrate prices and capital and operating costs, yields a 40-per-cent internal rate of return and a net present value of $213-million (U.S.) at a 10-per-cent discount rate or a $131-million (U.S.) NPV at a 15-per-cent discount rate on an after-tax basis over a mine life of 15 years. With this study the company is contemplating the sale of concentrates in North America to potential refiners/processors, several of which have contacted Rare Element already.
Hydrometallurgical tests for extraction and separation of individual rare earth oxides are progressing, and the ultimate goal is the production and sale of high-purity oxides of cerium, lanthanum, neodymium, praseodymium, and possibly europium, dysprosium, terbium, and other REO. These products may be sold individually as oxides, or in various combinations such as didymium (neodymium and praseodymium), SEG (samarium, europium and gadolinium), or as mischmetal (a mix of the rare earth elements).
Bear Lodge -- rare earth prices
The prices used in this study are based on historic three-year average concentrate prices. It is important to note the following:
-
REO concentrate prices are lower than refined REO prices.
- Historic REO concentrate prices are significantly lower than the
current REO concentrate prices as quoted in Metal Pages. For the Bear
Lodge distribution of rare earths, current prices have recently
increased approximately 360 per cent from the three-year historic average due
to the reduction in exports of REE products from China during the
third quarter of 2010, however, it is unknown if the current higher
prices are sustainable.
- A 10-per-cent change in the price of REO concentrate would change the base
case NPV of the project on an after-tax basis by approximately $58-million at a 10-per-cent discount rate, and $42-million at a 15-per-cent discount
rate.
- The sale of concentrates from Bear Lodge would likely be subject to a
long-term supply contract for which a price would be set in the
contract with one or more buyers. These long-term prices can differ
substantially from quoted spot prices for metal with smaller markets
such as rare earth elements.
The price assumptions used by Boyd for the REO concentrates are based on compilations of the past three years that range from $4.59 (U.S.) (2008), to $3.65 (2009), to $7.54 per kilogram (2010). These concentrates contain approximately 43.5 per cent REO and were derived from deposits that have a similar, but slightly less valuable, REO distribution compared with the Bear Lodge deposits. The 2010 concentrate price is based on Metal Pages' data through Aug. 31, 2010.
A recent price quote for REE concentrates on an FOB China basis, as reported on Sept. 2, 2010, by Metal Pages website, is $33.25 per kilogram. The elements needed for high-strength permanent REE magnets include neodymium, praseodymium, dysprosium and terbium; prices were quoted by Metal Pages (Sept. 2, 2010) at $56.75 (U.S.), $55.75, $288 and $595 per kilogram, respectively for those elements. Current REE producers seek to increase production of neodymium, praseodymium, dysprosium and terbium to meet the growing demand from magnet manufacturers. This underlines the need for new producers with mineral resources having an REE distribution that is more reflective of current market demand, such as that indicated for the bastnasite-group minerals at Bear Lodge. A complete list of historic prices used will be provided in the technical report to be filed on SEDAR.
The economic model suggested by IMCOA and tested by Boyd envisions a 5-per-cent market share capture (10,400 tonnes of a 200,000-tonne REO market) specifically for cerium, lanthanum, neodymium and praseodymium. This assumes that two other mines, one in the United States and one in Australia, will go into production prior to Bear Lodge, and that IMCOA's projections of market growth will allow additional producers of the light and heavy rare earths to successfully market their products by 2015.
REO pricing over the past three years and the current prices are shown in the table, "REO prices 2008 through 2010 and current prices." This information is shown only to indicate the recent increases in prices for individual rare earth oxides and its potential effect if Bear Lodge progresses into individual REO production. There is no certainty the current prices will be maintained for the duration of the operating life of the Bear Lodge project.
REO PRICES 2008 THROUGH 2010 AND CURRENT PRICES
Current
price
Rare earth Bear Lodge 2010 price (Sept. 2,
oxide oxide zone 2008 price 2009 price (8 months) 2010)
REO REO% $/kg $/kg $/kg $/kg
Ce(2) O(3) 1.66 $ 4.35 $ 4.2 $ 8.14 $ 36
La(2) O(3) 1.06 7.75 5.9 9.65 37
Nd(2) O(3) 0.52 27 14.85 32.32 56.75
Pr(2) O(3) 0.16 27 14.75 31.69 55.75
Sm(2) O(3) 0.088 4.5 4.5 8 33.25
Gd(2) O(3) 0.045 9.75 6.5 11.45 40
Y(2) O(3) 0.032 15.25 13.5 13.5 34.5
Eu(2) O(3) 0.021 475 465 551.25 585
Dy(2) O(3) 0.018 110 105 195 288
Tb(2) O(3) 0.0075 650 350 494.37 595
Others 0.0085
Total 3.62%
For the purposes of this study, the company has also shown a case that uses a 25-per-cent increase from the three-year trailing average prices used in the base case scenario. The company believes these may more realistically reflect long-term pricing for REO based on market outlook information available at this time. As with the current pricing for REO, there is no certainty these prices will be maintained for the duration of the operating life of the Bear Lodge project.
Bear Lodge -- capital costs
Capital cost estimates for the Bear Lodge project are lower than many other rare earth projects for two principal reasons: 1) infrastructure in the project vicinity is already well established with an excellent road and highway system, nearby railways, nearby power lines, available water source, and skilled labour within several local communities; and 2) the metallurgical preconcentration of rare earth minerals is a very simple and low-cost process that upgrades the mineralized material for further hydrometallurgical concentration.
The capital cost estimate for the base case production is $87-million in construction capital and $88-million in sustaining capital. This scenario involves development of the Bull Hill deposit at a mining rate of 1,000 tons per day or 360,000 tons per year. Operating costs for the project are estimated at $245 per ton of material milled, with the most significant single cost being reagent consumption in hydrometallurgical processing. The model assumes mining by open pit methods and processing of the mineralized material on site to produce mineral preconcentrates by crushing, attritioning with water and size separation methods. REE recoveries of 90 per cent are assumed for the preconcentration based on preliminary bench-scale testwork, however these results have yet to be confirmed with pilot-scale tests. The model further assumes construction of a hydrometallurgical plant at the mine site where there is access to low-cost power (estimated at approximately three cents per kilowatt hour) for the processing of the REE mineral concentrates in order to produce a bulk mixed rare earth concentrate. Metallurgical recovery to a concentrate is estimated at 90 per cent from the preconcentrate, for overall recoveries of 90 per cent times 90 per cent or approximately 80 per cent into the concentrate. All of these process stages are being tested currently for optimization and reduction of operating costs, and significant progress is being made with potential reduction of reagent costs.
Further testwork is continuing to extract and separate individual rare earth oxide products to plus-99-per-cent purity levels. The company's ultimate goal is the production and sale of individual high-purity rare earth oxides, which would require additional capital costs.
Bear Lodge -- REO distribution
The REE mineral resources at Bear Lodge are of potentially significant interest to the market because of their relatively high proportions of contained neodymium, praseodymium, europium, dysprosium and terbium. Demand is increasing for these elements in the magnet production and other industries, but they typically occur in lower concentrations in the majority of known REE deposits.
REO DISTRIBUTION IN OXIDE ZONE OF THE BEAR LODGE DEPOSITS
Element Ce La Nd Pr Sm Gd Y Eu Dy
Assay
REO % 1.66 1.06 0.52 0.16 0.088 0.045 0.032 0.021 0.018
Distribution
oxide % 45.86 29.28 14.36 4.42 2.43 1.24 0.88 0.58 0.50
Relative
value % 15.5 20.4 25.4 7.7 1.1 0.8 0.6 17.5 5.3
REO DISTRIBUTION IN OXIDE ZONE OF THE BEAR LODGE DEPOSITS
Element Tb Er Yb Lu Ho Tm
Assay
REO % 0.0075 0.0020 0.0012 0.00016 0.00100 0.00015
Distribution
oxide % 0.21 0.055 0.033 0.004 0.027 0.004
Relative
value % 5.6 - - - - -
Bear Lodge -- PEA summary
The results of the scoping study demonstrate that the Bear Lodge REE project can achieve acceptable after-tax returns on invested capital and therefore warrants further investment to advance the project to a prefeasibilty level of analysis. Increased rates of return are potentially achievable through any combination of higher prices, increased product sales, higher resource/reserve grades, lower operating costs, or higher metal recoveries. Boyd recommends that the Bear Lodge project proceed to a preliminary feasibility level analysis. The recommended work includes completion of bulk sampling, pilot plant testing, further drilling of the Bull Hill SW and NW deposits to upgrade more of the REE resources to measured or indicated categories of confidence, REO extraction and separation testwork on both the Bull Hill SW and NW deposits, environmental studies, mine permitting, and continuing community engagement.
The estimated cost of this work program is $15-million with the work to be conducted in two phases. Phase 1 consists of preparation of an updated mineral resources estimate that includes 2010 drilling results, continued metallurgical testing and a pilot plant test, which is anticipated to start in the spring of 2011. Phase 1 would include work to be conducted on samples and analyses from the 2010 drilling program. Phase 2 will include another drilling program for further resource expansion, resource definition and collection of metallurgical samples that will be used in a subsequent full feasibility study. The phase 2 program will then proceed to more detailed metallurgical testwork and engineering studies, leading to final process design and commercial testing, market studies, environmental studies and mine permitting, community consultation, engineering design, and economic modelling. Phase 2 work is planned to commence in the late spring of 2011, subject to positive results from phase 1 and arranging additional financing for the project.
Risks and opportunities
The principal risks for the Bear Lode project are identified as follows:
- Permitting and regulatory timelines and outcomes;
- Changes in metallurgical recoveries as testwork continues;
- Changes to capital and operating costs as studies continue.
The principal opportunities for the project are identified as follows:
-
Drilling in 2010 has intersected significant grades of REO outside
the limits of the mineral resources used in the PEA, which could
result in increased mineral resources and potentially extend the mine
life and/or support a higher production level.
- Optimization work is advancing and has had some success in developing
a more cost-effective and efficient metallurgical processing method
than is being announced in this scoping study by Rare Element for the
Bull Hill area mineralization, which information was not available in
time for this study.
- Hydrometallurgical tests for extraction and separation of individual
rare earth oxides is progressing, and the ultimate goal is the
production and sale of high-purity oxides of neodymium, praseodymium,
dysprosium, terbium, europium, lanthanum, cerium and other REO.
- Drilling has encountered large areas of low-grade (1.0 to 1.5 per cent REO)
oxide mineralization adjacent to the higher grade dikes. These areas
are not included in the resource estimates and will be the subject of
some drilling and metallurgical testing to determine if the material
can be upgraded with a simple inexpensive process of screening or
screening and washing.
Qualified persons
Michael P. Richardson, PE, is the independent qualified person from John T. Boyd Company responsible for the scoping study (preliminary economic assessment) as well as mine planning, capital and operating cost estimation, and developing the economic models. He also reviewed and approved this news release as well as all sections of the scoping study. Alan C. Noble, PE, of Ore Reserves Engineering, is the independent qualified person responsible for resource estimation. Dr. Ron Roman, PE, of Mountain State R&D International, is the metallurgical engineer and an independent qualified person responsible for the metallurgy, process development, and estimation of the mill capital and operating costs. Dr. James G. Clark, LGeo, who has direct experience with the project dating back to 1986, is responsible for the geologic, drilling and sampling data on behalf of the company; these data and descriptions were reviewed and approved by Mr. Richardson. The full study will be accessible on SEDAR and the executive summary will be available on the company's website within 45 days.
Dr. Ranta, PhD, PGeo, serves the board of directors of the company as an internal, technically qualified person. Technical information in this news release has been reviewed by Dr. Ranta and has been prepared in accordance with Canadian regulatory requirements that are set out in National Instrument 43-101. This news release was prepared by company management, who take full responsibility for content. Neither TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
TOTAL INFERRED TONS AND GRADE OF THE VARIOUS OXIDATION ZONES
AT A RANGE OF CUT-OFF GRADES (% REO)
Cut-off Oxide Transitional Sulphide Total
grade (1,3) grade grade grade grade
tons (1) tons (1) tons (1) tons (1)
1.0 13,700,000 2.63 4,300,000 2.52 9,600,000 2.70 27,600,000 2.64
1.5(3) 8,000,000 3.62 2,600,000 3.39 6,900,000 3.29 17,500,000 3.46
2.0 5,600,000 4.45 1,700,000 4.23 4,600,000 4.05 11,900,000 4.26
2.5 4,400,000 5.06 1,300,000 4.93 3,900,000 4.37 9,600,000 4.76
3.0 3,300,000 5.84 930,000 5.71 3,000,000 4.88 7,200,000 5.42
3.5 2,700,000 6.42 800,000 6.13 2,200,000 5.53 5,600,000 6.04
4.0 2,300,000 6.90 690,000 6.50 1,470,000 6.33 4,400,000 6.65
4.5 1,900,000 7.52 570,000 6.96 1,200,000 6.79 3,600,000 7.19
5.0 1,600,000 7.88 460,000 7.48 1,000,000 7.24 3,100,000 7.61
(1) REO (rare earth oxides) include Ce2O3, La2O3, Nd2O3, Pr2O3, Sm2O3,
Gd2O3, Y2O3, Eu2O3, Dy2O3 and Tb2O3, listed in relative order of
decreasing abundance in the deposits, plus minor quantities of other
REO.
(2) The resource estimate is classified as inferred mineral resources as
defined by CIM and referenced in NI 43-101.
(3) ORE considers a range of 1.0- to 2.5-per-cent REO cut-off grade to be
reasonable in preliminary estimation of potentially economic
resources. A cut-off grade of 1.5 per cent REO was selected as the
base case during resource estimation and it is highlighted; a
cut-off grade closer to 2 per cent REO is used for the scoping study
but, with further optimization work, will potentially be reduced;
a cut-off grade of 3.0 per cent REO is also highlighted to show
the higher-grade tons above the cut-off.
(4) The scoping study is focused on the oxide mineralization at
approximately 2-per-cent cut-off grade.
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